Logistics ManagementShahid Chavakkad

7/30/2019 Logistics ManagementShahid Chavakkad

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Presented in Elijah Institute of

Management studies, Thrissur


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The practical organisation that is needed tomake a complicated plan successful when a lot of

people & equipment is needed

e.g. 1. Logistic support in the army

2. Organising famine relief presents huge

problems

i.e. Moving Right People & Right Equipment tothe Right Place at the Right Time through theRight Methods.


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To have competitive edge over others

Marketing mix (By McCarthy): Product, Price,

Promotion, Place (4 Ps)

Past Place was a dark continent in marketing

(Peter Drucker, 1992)


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In the past, Distribution was not important.Because of manufacturers monopoly

E.g. 10 years waiting for Padmini Cars.

6 years waiting for Bajaj Scooters Shift from Sellers Market to Buyers Market

Consumers are now Bosses


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Now, any product is available, that too oninstallment

No monopoly now

Business has become more Complex &Dynamic now

Vibrant market (Market is time & price

sensitive)


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Everyday, everybody is thinking about new

market plans

Survival of the fittest theory

Saying People have your money in their

pocket & You have their goods on your

shelves


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Push is important than Pull now

Question is how you push?

To give the best products & services thanothers

To win customers loyalty & goodwill

A satisfied customer will remain loyal


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Your weakness is your competitors

advantage

More business competition & rivalry now

E.g. Fuel efficiency claim by Hero Honda

(Now Bajaj claims 102 kmpl)

Fuel efficiency & Economy: by Maruti Cars

(Tatas are now coming with mini Nano)


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Due to rapid technology transfer

Rivals not only copy, they add more features

& give more value for your money

Now, lower pricestrategy doesnt work.

(Because consumers have enough money)


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Now, Promotionalso doesnt work (Because

too much advertisements will make the

consumers confused and fed up)

Hence Place (out of the 4 Ps) is important

now


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Complicated business scenario

Rapid economic boom

Globalisation

Liberalisation

Intelligent consumers


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Heavy Industrialisation

Scientific innovations

Hence for more customer satisfaction now

To be customer focused


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Quick delivery & after sales service (24 hrs)

Hence the need of Logistics Management


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Logistics from Greek word Logisticos meaning

science of computing and calculating

First used in military sense (Logistical Support)

(World War II & other wars)


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Webster (1963) defines Logistics as:

The procurement, maintenance & transportation

of military materials, facilities & personnel

US Airforce (1981) defines:

The science of planning out the movement &

maintenance of forces


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CLM(Council of Logistics Management (1991)defines:

Logistics is the process of planning,

implementing & controlling of efficient,effective flow & storage of goods, services andrelated information from the point of origin tothe point of consumption for the purpose ofconforming to the customer expectations


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Corporate vision & objectives To turn itinto winning edges over others

Strategic logistics analysis

(i.e. finding alternatives, evaluation,selection etc.)

Logistics planning & evaluation

Managing change


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Firm to dominate

4 Ps Place more important

Highest level of customer satisfaction tomaximize productivity & profitability at

lower cost


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Five ways for gaining it

Low cost (To enhance Profitability)

Superior customer service

Value added services (e.g. training to customers)

Flexibility

Regeneration (i.e. to be innovative)


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Product Design

E.g.

Plastic moulded water tanks

Fully assembled automobiles Transportation of huge machinery

(H & R Johnson)

Containers capacity and storage


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Plant Location

Choice of sources/ markets

Production structure & planning

Distribution/ Dealer network design

Warehouse location/ operations

Plant layout


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Allocation decisions

Inventory management/ stock levels

Transportation models/ Routing/ Capacity

E.g. Cement Transportation (wagonshortage) change in packaging (Jute, plastic)

Packaging


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Material Handling

Storage problems in monsoons

Plant/ warehouse near port/ Airport

Nearness of dealers to factory/ warehouses


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Shippers

Suppliers

Carriers (Rail, Road, Air etc)

Warehouse providers/ Freight forwarders Terminal operators (port, stevedores)

Government (Regulations & logistics)

Role CST, local sales tax, excise, octroi, modvat,

road tax on vehicles


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Inbound Logistics (Raw Materials)

Outbound Logistics (Finished Products)

Single v/s Multiple plants

Nature of the products

e.g. various dimensions

- Bulk, perishable, non-perishable, refrigerated,non-durable, industrial v/s consumer products,

packaged products (Fruits/ Vegetable exports)


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Includes goods transportation & storage

Material handling & Information structure

We do mostly by road & rail

Pipeline is growing

Waterways unexplored

Air for emergency only


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In India, a lot to improve

Government to take initiative

Suppliers to be cost conscious Communication technology to improve

Suppliers & shippers are to be cost

conscious

In short, the whole industry is unorganized


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Like any other organisational Mission

Customer relationship to be closer

Goods to be faster & cheaper

Need for integrated Logistics Management


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Organisational rigidity is a barrier(Both structural & personal)

Because Managers ego & territories

In conventional companies, even inbound &

outbound transportation is differentiated

Too much paperwork & Red Tapism


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Papers move even slower than the movement ofcargo

A conventional company, shows multifaces to

customers.

They shunt them from table to table, department to

department


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Organisation to be horizontal

Organisation to be market facing/ market

driven (Output focused)

Organisation to work together

Organisation to have cross functional teams

This is Flat Organisation system

To have customer order fulfillment system


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By eliminating non-value added items e.g.

delays in paperwork, idle times intransportation, storage, checking etc.

Better management of order fulfillment groups

like sales office people, accounting, Cr. control,

transport department etc.


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Reaching Right Quantity

with the Right Quality

at the Right Priceat the Right Place

at the Right Time

to the Right People

with the Right Mode (of transportation)


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(Quote from M S Banga, Chairman, HLL

(FMCG) AGM 2004 Speech)


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To touch customers in multiple ways

To create brand messages & to experience our

brands

To offer tailored solutions to customers nowNow shopping is a new experience

E.g. Family and children taking leisure time


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Now consumers are well informed throughadvertisements

(Average 350 to 400 Ads/ week)

Redistribution partners are important to HLL

HLL has 25000 outlets in key cities in India

They do superior display of HLL products


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HLL introduced self service stores in Indiae.g. HLL in Hyderabad

Reliance Super Stores

Advantage is consumers can Touch & FeelHLL Sunsilk shampoo wash in stores

The key factor is product availability


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There are 600,000 villages in India in the mostremotest places

HLL creates win-win partnership with consumers

e.g. Surf Ad

HLLs plan is to reach to 100,000 villages = 100

million people (rural)


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New self help women group sell HLL productsdirectly to the rural people

They also spread the message of health & hygiene

e.g. Lifebuoy for health


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Now doing direct selling, generating Rs. 2300/-Crores & growing at 20% pa

Also provides customised offerings covering 11

categories in Home & personal care & foods

HLL has network of over 1500 towns in India

covering 80% of urban population, with 250,000

consultants


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Direct selling enables personalised communication& customized solutions, through demonstrations &

product trials & brand experience


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Eating outside in European style

Now in India, due to busy family life and nucleus

family


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HLL adopts 3 ways

Product availability

Brand Communication

Brand experience


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HLL re-inventing their distribution network

HLL distribution creates new employments

HLL has 7000 stockists, 6000 sub-stockists, employs

60,000 people


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Interface means ConnectionsMarketing is the management of 4Ps (Product,

Price, Promotion, Place)

Right product, .Right Place etc. The competitive edge to be customer service


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Customer awareness of RightsCustomers are too much demanding Customers

know what is in the market

No brand image will work out. Neither the price,

nor the quality

E.g. Computer market

Now it is product availability & service (Product

Sector)


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Service in non-manufacturing is equally importantnow (Service Industry)

Service is an added value now

Financial loss due to out-of-stock scenario


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Marketing is inter-related with Logistics &Customer Service

The concept of Customer Retention

i.e. A satisfactory customer will remain loyal

Will also get references


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To sell & to service a loyal customer is less costly

A loyal customer may not think of substitutes

This is Relationship Marketing

To create & sustain & strengthen customer loyalty &

relationship


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First, to design customer needs and then theservices

Then, design a suitable logistics system

Less inventory but faster mode of transport for

reaching the goods

Customer Servicing through better & faster

logistics


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Procurement & manufacturing management have to

be market oriented, need oriented.

This is Logistics Pipeline Management


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Not to produce at any cost

Inventory tied up is money tied up

To produce the right product

Production schedule through better planning

management

Production to be market oriented


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Procurement of raw materials requires planning,lead time, mode of transportation, time, cost

Co-ordination between production and other

departmentsi.e. Logistics the whole concept


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These are Quantitative models from operationsresearch

1.Forecasting Models

Demand and Supply based on past data

2. Mathematical Programme Model

a) Location Model i.e. planning optimal & ideal location of plant &

warehouses, both for inbound and outbound

To minimize Transportation cost


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b) Allocation Models i.e. optimal allocation of commodities from sourcesto

destinations with a vast & multidimensional network

e.g. a company with 15 plants & 30 warehouses

c) Distribution Network Design Model Involves location of warehouses & break bulk points,

choice of transportation modes

Distribution costs include transportation, ware housing,

handling, inventory


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3. Inventory Models Costs on buffer stock keeping for uncertainties

Shipment & inventories of Finished products, its

warehousing & retailing

Pipeline inventory4. Routing Models

i.e. routing of transportation network to

destinations

The simplest model is called the shortest pathproblem

e.g. Critical path method in Operations Research

Can be done by using geographical maps


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JIT (Just In Time) is a Japanese philosophyi.e. nothing is produced/ moved until the need arises

Produces against advance firm order (Pull)

Push is in anticipation of the demand

In pull, product flow is based on demand


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ROP (Reorder point)

At ROP, the new order is placed

The quantity to be ordered is based on EOQ

EOQ = (2AS) i

A = Annual usage

S = Set up ordering cost

i = Inventory carrying cost


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EOQ = (2 x 1000 x 100) = 141 40 x 25 %

A = Annual usage

(e.g. 1000 units)

S = Set up ordering cost

(Rs 100/- per unit)

i = Inventory carrying cost

(e.g. 25% of unit cost = Rs. 40/-)


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Another way to keep inventory management is aperiodic review of stock/ replenishment levels

Push & pull may lead to higher/ lower stocks

EOQ may create more carrying costs in the initial

stages, then it gets decreased till the next EOQ

ordered


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JIT due to space shortage (especially in Japan) JIT encourages small lot batches/ Quantities but

often (To avoid stock out at manufacturers side)

This is against conventional system of massproduction & storage

JIT requires strictest planning discipline


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JIT requires firm orders from customers JIT advocates for consolidated delivery

Consolidation can be done by 3rd parties. They

collect, segregate for onward despatches JIT requires a good co-ordination & communication

between supplier & customer


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JITs philosophy is Quick Response Logistics(QR)

P & G uses QR. Their retailer Walmart gives

them quick and fast sales dataQR leads to

less inventory

less safety stock

less pipeline inventory less lead time

less forecasting errors


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Developed a technique Industrial Dynamics

Developed a special computer stimulated language

known as Dynamo

Built 3 models of inventory Retailer Inventory

Distributors Inventory

Factory Inventory


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Each of these models were connected throughinformation flows & goods flows

Information flows like order processing time,

factory lead time, shipping delivery time etc.

Sometimes, a surge/ a jolt is created during

promotional activities i.e.

retailers wholesaler manufacturers


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It becomes a pressure in the chainThis surge can be minimized through better

information exchanges in the chain

Dell & Hewlett Packard does the final assembly onlyafter getting customers actual requirements


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Mass customization can be done with CAD/ CAMi.e. Computer Order Design

E.g. Customer Foot shoe Co.

No inventory.

They take measurements make-to-order 3 weeks delivery time

Toyotas Strategy make 80% of the total demand

based on forecasting 20% on firm orders


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What is distribution?

Right goods, Right Place etc


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a) Industrial Products Company Customer

b) Automobile

Company Dealer Customer

c) FMCG & Pharma

Company C&F Stockists Retailers Customers


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d) FMCG Company Distributors Wholesalers Retailers

Customers

e) FMCG

Company Depot Stockists Retailers

Customers

f) Consumer durables

Company

Own Retail Outlet

Franchised showroom Customers


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g) Food grain, garments Company CA Wholesalers Retailers

Customers

Note:- To have warehouse or not?


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i.e. Company

Consumers(No Intermediary)

e.g. Industrial products & services sectors, where

the unit value of the product is very high, producttechnicality & product complexity


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To have its

Own sales force

Own retail outlets

Direct Mailing

Telemarketing

Websites


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Personal Selling

To have trained sales force

Sales force locates customers

E.g. Insurance sector, Eureka Forbes

Telemarketing

Through Telephone calls

Positive is, reduced selling costs


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Direct Mailing

Sending detailed brochures to prospective customers

Is a silent sales

Negative is, poor response

Firms to have the right & vast data bank


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One-tier Distribution system

i.e. Company Distributors Customers (only 1

intermediary)

positive is, minimum distribution costs, maximumcontrol

e.g. Maruti Sitaram Customer


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Two-tier Distribution system

E.g. Company Wholesaler Retailer Customer

Multi-tier Distribution system

E.g. FMCG Firms


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i.e. by adopting more than one channel system toreach to customers

e.g. Auto component Manufacturers & HLL

Company Customers Company Wholesalers Customers

Company Retailers Customers


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Manufacturing firms prefer MCS for greatermarketing coverage & penetration

Drawback: Rivalry & competition among agents in

MCS resulting into unethical selling & loosingCorporate image


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MCS is complex & expensive, but effective &profitable if managed well

Channel conflict may lead to loosing business

opportunities


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To look into the following 6 areas

1) Distribution Objectives

Manufacturers to know firms overall

marketing objectives & strategies


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Objectives include:-

Greater market coverage, dominance,

penetration

Higher growth, long term business plans

Sustainable competitive advantage

Control on channel relationships Social care


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2) Distribution system alternatives - To decide whether to have DDS (one-tier etc)

3) Determining intensity of distribution

- i.e. how many channel numbers, length, width,

etc.

4) Intensive distribution

To dump products everywhere

(When products are inexpensive)


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5) Exclusive distribution - i.e. whether to give exclusive dealership or not,

for a designated area

e.g. readymades

6) Selective distribution

i.e. to select high potential channel intermediaries

(i.e. agents/ sellers)

To bring maximum turnover & profits


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Storage Warehouse For keeping for a long time

E.g. Raw materials, components etc for production

Closer to factories

Warehouse

For keeping finished products

Storage time varies


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Module III


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Distribution Centre i.e. full service warehouse

It emphasizes on movement, then storage

Situated near to market

Warehouse is a value added process now, than a

necessary evil(if managed well)


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Warehouse to be meant as a Switching/ Transitfacility

To store goods scientifically & systematically to

retain its value & originality

Requires a good information system


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1) Ownership Based2) Private warehouses (company owned) + points

3) Public warehouses (e.g. By government or byorganisation)

4) Bonded Warehouses Either private or government owned

Under customs/ Excise control

(Goods removal after paying duty)


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5) Cold Storage

6) Export & Import warehouse


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I. Economic Functions (i.e. logistical costs)

If more warehouse is added, Transportation cost

can be reduced

Consolidation

a single warehouse receives goods from many plants

e.g. A,B,C, etc.

But despatches to one customer


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Break Bulk Entire lot is stored

Then despatched to different customers

Stock - Piling i.e. seasonal storage of goods e.g. Garments

Value added services Packaging & labeling is done in the warehouse


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II. Operational Functions

E.g. receiving goods, storing, Record keeping,

forwarding etc.


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Based on demand pattern

Based on buying behaviour

Competitors warehousing strategies

Nature of the products

The cost

Availability of goods


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Warehousing facilities required for the product

Now decide

Whether to have warehouse or not

If owned, to centralize or not.(Centralised means very few, decentrailised means

many)

Location, cost


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a) Geographical location

b) Production centre v/s location

c) Transportation infrastructure facilities

d) Nature, quality, quantity of goods to be stored

e) Management philosophy


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Land/ Space cost (Capital)

Handling/ Transportation costs

Administrative costs


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Quantity based, product characteristics, shapes,sizes, weight

Warehouse design to be flexible & futuristic

Good material handling system


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1. Purpose

2. Layout

3. Warehouse space requirement & aisle layout


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Layout for material handling Roof plan, floor plan for smooth material flow

Windows, aisles, platforms, pillars, lighting,

elevators, cranes, forklifts, trucks (loading

platform) etc, palletized keeping, water,

communication, road.

Vast courtyard for parking


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Space for office, security, compound wall For keeping damaged goods, refrigerated area

Bonded space

Computer usage


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Improved customer service

Accurate inventory records

Better use of storage capacity & equipmentutilizations

To know stock costs

Material availability

Visibility of inventory

Routine record keeping for verification


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Is necessary for consumer products

Branding e.g. Glucose biscuit, Toothpaste(Colgate)

Design package

Usually squares (To save space)

Pencil like package (Lipstick) for utility purpose,

easy to carry in handbags


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Packaging for protection

Packaging for economy

Package for convenience

Packaging for promotional activities

Sometimes 5 Ps ( Price, product, place promotion,

&Packaging)


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For self services (it is self explanatory)

Consumer affluence

Company & Brand image

For cost efficiency (due to innovational

packaging)


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For

Product protection

Containment

Attractiveness

Identification

Convenience

Effective sales tool


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Easy display

Advertisement

Easy storage & transport

Easy to identify

Good memory & identification/ recognition


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Earthenware China Jars

Wooden/ hard boxes

Straw baskets

Gunny/ Plastic bags

Glass bottles

Tin containers

Clothes, etc.


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1. Consumer Package e.g. Toothpaste

2. Family Package

3. Reuse Package e.g. glass jar

4. Multiple Package e.g. Make-up set, Baby care


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To protect contents

To be attractive

To identify

For convenience

To identify

For convenience


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To occupy less space

Image of the brand

To have a clean look

Proud to possess

Status (e.g. Damas packs)

Minimises sellers job


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To resist soiling

Labels pasted

Eye-catching

Simple in design

Easy to handle


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Module III


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Movement of one product from one locationto another location

i.e. Distribution of products to various

locations

because products are not consumed in one

place

An important factor in Supply Chain

especially, transportation cost


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It is 6% of the GDP in USA

E.g. Home delivery etc.

So manage transportation effectively

E.g Pooling in Metropolitan cities

So, aggregation of product to different

customers while delivering


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Walmart uses cross docking system i.e.exchanging products based on where

shortages & surpluses occur

To establish the cost effectiveness of thetransport mode


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1) Vehicle related costs i.e. purchase, lease,charter costs

Fixed costs even if vehicle is not used

2) Fixed Operating Costs: E.g. Vehicle

parking, trucking facility, terminal facility

for aircrafts, hangers, drivers salary, etc.


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3) Trip-related Costs: Labour, Fuel. Labour cost/ Day or fixed salary.

4) Quantity-related Costs: For loading unloading

5) Overhead costs: i.e. Costs involved in

information technology used in transportationnetwork

E.g. Truck Drivers with Walky Talky Wireless


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Air Land (Road, Rail)

Sea

Pipeline


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Carrying Passenger & Carg, incur high fixedcosts in infrastructure and equipment

Labour and Fuel costs

Hence, Airline to maximize the daily flyingtime

Hence, airline to maximize seating capacitywith different priced classes

Fast but expensive

Carry costly airfreight items


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E.g. FEDEX, UPS, DHL

They use Air, Truck, Rail transportation systems

(Intermodal)

Expensive mode of despatch Can carry fairly small consignments

Have their own aircrafts, trucks etc.


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Rates according to distances

More expensive than rail

Delivery door-to-door

Shorter delivery time

More reliable

Less pilferage and theft


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More economical

Bilk Carriers

For long distances

Could be delayed due to shunting of bogies

Ideal for heavy, low value shipments

More pilferage and theft

Less reliable

E.g. to carry coal, rice, wheat, cement

Uncertain deliveries


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Few Famous lines: Maersk, American President

Lines (APL), Scindia Steam Navigation Company,Shipping Corporation of India (SCI)

For large bulk to carry

Slow & delay

Carries cars, grains, iron and steel etc.

Cheapest mode


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For transporting crude petroleum, natural gas

etc

E.g. India-Pakistan-Iran Gas Pipeline (underconsideration)


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By using more than one mode of transportation E.g. Rail + Road (To carry containers)

E.g. Sea + Rail + Road (To carry containers)

High network is required for information

passing


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There are five factors Company Characteristics and Philosophy

(Airline, DHL, L& T, etc)

Market Structure (e.g. Geographical/Territorial) e.g. Russia with no sea port

Product Characteristics (weight, height, size,

shape, shelf-life etc)


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Customer Characteristics (DeliverySpecifications)

Environmental Issues (Govt. policies, at times

subsidized transportation etc)


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i.e. Inter-Company computer-to-computercommunication

No Human Intervention is required

This is an automation facility It is inter-organisational

Consists of standardized Electronic Message

Formats


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Can Communicate from one company to

another through computer

Becomes paperless communication

Can prepare and send invoices, purchaseorders etc. (computer-to-computer)

Best for inventory management

E.g. Dells marketing with customers (Direct

ordering via Internet)


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Intranet is a means of distributinginformation.

Establishes complete network flow of

information from department to department,to warehouse, to shop-floor etc.

In intranet, the access is restricted to

outsidersWhen access is given to outsiders (e.g.

suppliers and customers), it becomes extranet


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Data mining is exploring data stored already, fortransforming it to useful and meaningful information

(e.g. for forecasting purposes)

Data warehouse is a store house, built to contain

enterprise-wide information, collected from multipleoperational sources


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i.e. Electronic commerce or paperlessoffice

Everybody will transact businesselectronically (e.g. Zurich in Dubai)

It is a wide business

Reduces time, money, and speed up supply& service

E.g. By Internet we can reach anywhere

S h t i

Documents

Logistics ManagementShahid Chavakkad